Just one month after its direct stock offering, Spotify Technology S.A. (NYSE: SPOT) produced its first quarterly report as a publicly traded company after markets closed Wednesday. Just looking at the stock price Thursday morning, it seems conclusive that investors did not like what they heard.

Total revenue rose 26% year over year to €1.14 billion ($1.37 billion), with premium revenues up 25% to €1.04 billion and advertising revenues up 38% to €102 million. The company’s net loss per share dropped from €1.15 to €1.01 and the operating loss fell from €139 million to €41 million.

The revenue total matched expectations, but the company’s per-share loss was forecast at around €0.30.

On the subscriber front, the paid (premium) subscriber total rose to 75 million and total monthly active users, including free (ad-supported) subscribers, rose to 170 million. In the first quarter of the year, Spotify added 4 million net new paid subscribers, and since the first quarter of last year the company has added 23 million paid subscribers.

Spotify’s churn rate fell below 5% in the quarter, which means that gross new subscribers totaled 7.4 million in the quarter.

The company also pointed out that its gross margin improved from 11.7% a year ago to 24.9%, higher than Spotify had forecast, due primarily to lower costs to pay music rights holders.

Spotify said it expects total monthly active users to rise to a range of 175 million to 180 million in the second quarter and premium subscribers to total 79 million to 83 million. Revenue is forecast at €1.1 billion to €1.3 billion with gross margin of 24% to 26%. The company expects to post an operating loss in the range of €60 to €150.

For the full year, the company expects to have 198 million to 208 million monthly active users, of which 92 million to 96 million are premium subscribers. Total revenues are forecast at €4.9 billion to €5.3 billion, gross margin is estimated at 23% to 25%, and the total operating loss for the year is expected to fall in a range of €230 million to €330 million.

Analysts were looking for a second-quarter loss per share of around €0.36 and revenues of €1.08 billion. For the full year, the consensus forecast calls for a per-share loss of about €1.49 and revenues of €4.34 billion.

Spotify clearly plans to continue focusing on subscriber growth and that will weigh on both margins and free cash flow. The company it will most closely be compared to is Netflix and in its first quarter as a publicly traded company, the comparison works out well for Spotify. Netflix had about the same number of paid subscribers in its first quarter and slightly higher streaming revenues. Cost of revenues was around 70%, somewhat better than Spotify’s 75%, and average revenue per user (ARPU) was $22.37 compared with about $16.50 for Spotify.

Spotify’s challenge is to continue reducing its costs so that it can grow its gross margin and ARPU. This first quarter report is a good start — better than investors seem to believe.

The company’s stock traded down about 9.7% Thursday morning to $153.57, in a post-offering range of $135.51 to $171.23. The consensus 12-month price target on the stock is $155.48.

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